Bates Recycling, Inc. v. Conaway

126 N.E.3d 341

2018 Ohio 5056

BATES RECYCLING, INC., Plaintiff-Appellant,

v.Kyle CONAWAY, et al., Defendants-Appellees.

NO. 1-18-41

Court of Appeals of Ohio, Third District, Allen County.

Date of Decision: December 17, 2018

John C. Filkins for Appellant

Thomas A. Gibson, Toledo, for Appellee

WILLAMOWSKI, P.J.

{¶ 1} Plaintiff-appellant Bates Recycling, Inc. ("Bates Recycling") appeals the judgment of the Allen County Court of Common Pleas for denying its motion for summary judgment. For the reasons set forth below, the judgment of the trial court is affirmed.

Facts and Procedural History

{¶ 2} On November 17, 2014, Bates Recycling filed a complaint against Kyle L. Conaway ("Conaway") and Lee's Hydraulic & Pneumatic Service, LLC ("Lee's Hydraulics"), which is operated by Conaway. Doc. 1, 12. According to the complaint, Bates Recycling had delivered two hydraulic cylinders to Conaway for the purpose of obtaining a repair estimate. Doc. 1. Subsequently, Bates Recycling rejected Conaway's repair estimate; contacted Conaway to schedule a time to retrieve their hydraulic cylinders; and discovered that Conaway had scrapped the hydraulic cylinders. Doc. 1. The complaint presented claims against the defendants for conversion and unjust enrichment. Doc. 1.

{¶ 3} During the pendency of this litigation, Lee's Hydraulics was located at a property that was owned by JAMAS Land, LLC ("JAMAS"). Doc. 101. JAMAS was not an affiliate of Lee's Hydraulics. Doc. 68. In early 2016, Lee's Hydraulics owed JAMAS approximately $6,000.00 in overdue rent. Doc. 101. To resolve this back rent, Lee's Hydraulics returned the keys to the premises to JAMAS but did not remove all of its equipment. Doc. 101.

{¶ 4} On April 25, 2016, Lee's Hydraulics tendered a bill of sale to JAMAS for the equipment left on the premises. Doc. 68, 101. In exchange for these assets, JAMAS gave Lee's Hydraulics $25,000.00 in cash and forgave the $6,000.00 in past due rent. Doc. 68, 94 at 37, 101. The bill of sale did not reference the pending litigation between Lee's Hydraulics and Bates Recycling, nor did it include the sale of any hydraulic cylinders. Doc. 101. On September 23, 2016, JAMAS arranged for the Beth Rose Auction Company ("Beth Rose") to sell the equipment JAMAS obtained from Lee's Hydraulics. Doc. 67, 97.

{¶ 5} After a bench trial on September 19, 2016, the trial court entered a judgment in favor of Bates Recycling. Doc. 41. The trial court held Conaway and Lee's Hydraulics jointly and severally liable for $50,000.00 in compensatory damages and $50,000.00 in punitive damages. Doc. 41. On November 8, 2016, Bates Recycling filed a motion in the trial court asserting a lien on the assets owned by Lee's Hydraulics. Doc. 45. This motion was accompanied by documents that showed that Beth Rose was going to auction, on November 13, 2016, some equipment that had belonged to Lee's Hydraulics.¹ Doc. 45.

{¶ 6} In addition to requesting a lien, Bates Recycling also requested an order prohibiting dispersal of the proceeds of this auction. Doc. 45. The trial court granted a lien on the assets owned by Lee's Hydraulics and issued an order prohibiting the dispersal of the proceeds of the auction. Doc. 47. In response, Beth Rose submitted an affidavit that stated it had never entered into a contract with Lee's Hydraulics for the sale of property. Doc. 67. Beth Rose further stated that the auction facilitated the sale of personal property that belonged to JAMAS. Doc. 67.

{¶ 7} On February 24, 2017, Bates Recycling filed a motion to set aside the transfer of the equipment from Lee's Hydraulics to JAMAS, alleging that this transfer was fraudulent. Doc. 64. Bates Recycling also submitted a motion that requested leave to name JAMAS as a third party defendant. Doc. 65. On April 17, 2017, JAMAS and Bates Recycling entered into a consent agreement in which Beth Rose agreed to put the $29,496.12 obtained through the auction into a trust account. Doc. 72. JAMAS was also added as a third party defendant to this suit. Doc. 72.

{¶ 8} On May 4, 2017, Bates Recycling filed a complaint against Conaway, Lee's Hydraulics, and JAMAS. Doc. 98. This complaint alleged that the transfer of assets from Lee's Hydraulics to JAMAS was a fraudulent conveyance and requested that this transfer be set aside. Doc. 98. On June 15, 2018, Bates Recycling and JAMAS each filed a motion for summary judgment. Doc. 96, 97. On July 11, 2018, the trial court denied Bates Recycling's motion for summary judgment and granted JAMAS's motion for summary judgment. Doc. 101.

Assignment of Error

{¶ 9} Bates Recycling filed its notice of appeal on August 3, 2018. Doc. 104. On appeal, appellant raises the following assignment of error:

The trial court erred when it denied appellant's motion for summary judgment for appellant established that appellee purchased all of the remaining assets of the defendants while litigation was pending against the defendants and as such the conveyance was fraudulent.

Bates Recycling asserts that the trial court erred in determining that JAMAS was a good faith purchaser and that the transfer of assets from Lee's Hydraulics to JAMAS was not a fraudulent conveyance.² Bates Recycling further argues that the doctrine of lis pendens applies to this action.

Legal Standard

{¶ 10} Appellate courts consider a summary judgment order under a de novo standard of review. James B. Nutter & Co. v. Estate of Neifer , 3d Dist. Hancock No. 5-16-20, 2016-Ohio-7641, 2016 WL 6636380, ¶ 5. Under the Ohio Rules of Civil Procedure,

[s]ummary judgment shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence, and written stipulations of fact, if any, timely filed in the action, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law * * *. A summary judgment shall not be rendered unless it appears from the evidence or stipulation, and only from the evidence or stipulation, that reasonable minds can come to but one conclusion and that conclusion is adverse to the party against whom the motion for summary judgment is made, that party being entitled to have the evidence or stipulation construed most strongly in the party's favor.

Civ.R. 56(C). "The party moving for summary judgment has the initial burden ‘to inform the trial court of the basis for the motion, identifying the portions of the record, including the pleadings and discovery, which demonstrate the absence of a genuine issue of material fact.’ " Middleton v. Holbrook , 3d Dist. Marion No. 9-15-47, 2016-Ohio-3387, 2016 WL 3223956, ¶ 8, quoting Reinbolt v. Gloor , 146 Ohio App.3d 661, 664, 767 N.E.2d 1197 (3d Dist.2001).

{¶ 11} "The burden then shifts to the party opposing the summary judgment." Id. "In order to defeat summary judgment, the nonmoving party may not rely on mere denials but ‘must set forth specific facts showing that there is a genuine issue for trial.’ " Byrd v. Smith , 110 Ohio St.3d 24, 2006-Ohio-3455, 850 N.E.2d 47, ¶ 10, quoting Civ.R. 56(E). "[B]ecause summary judgment is a procedural device to terminate litigation, it must be awarded with caution." Williams v. ALPLA, Inc. , 2017-Ohio-4217, 92 N.E.3d 256 (3d Dist.), quoting Murphy v. Reynoldsburg , 65 Ohio St.3d 356, 358-359, 604 N.E.2d 138 (1992). "The court must thus construe all evidence and resolve all doubts in favor of the non-moving party * * *." Webster v. Shaw , 2016-Ohio-1484, 63 N.E.3d 677, ¶ 8 (3d Dist.).

{¶ 12} Several sections of the Ohio Uniform Fraudulent Transfer Act ("OUFTA") govern the issues in this case. R.C. Chapter 1336. R.C. 1336.04(A) defines a fraudulent conveyance as follows:

(A) A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor, whether the claim of the creditor arose before, or within a reasonable time not to exceed four years after, the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation in either of the following ways:

(1) With actual intent to hinder, delay, or defraud any creditor of the debtor;

(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and if either of the following applies:

(a) The debtor was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; (b) The debtor intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.

R.C. 1336.04(A). For the purpose of determining whether actual intent exists under R.C. 1336.04(A)(1), " R.C. 1336.04(B) lists several statutory factors, or the so-called ‘badges of fraud,’ that a court considers to determine if an inference of fraud exists." Baker & Sons Equip. Co. v. GSO Equip. Leasing, Inc. , 87 Ohio App.3d 644, 650, 622 N.E.2d 1113 (10th Dist.). Under R.C. 1336.04(B) courts may consider the following factors in addition to any other relevant factors:

(1) Whether the transfer or obligation was to an insider;

(2) Whether the debtor retained possession or control of the property transferred after the transfer;

(3) Whether the transfer or obligation was disclosed or concealed;

(4) Whether before the transfer was made or the obligation was incurred, the debtor had been sued or threatened with suit;

(5) Whether the transfer was of substantially all of the assets of the debtor;

(6) Whether the debtor absconded;

(7) Whether the debtor removed or concealed assets;

(8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

(9) Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

(10) Whether the transfer occurred shortly before or shortly after a substantial debt was incurred;

(11

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